A. Cost based transfer pricing is perhaps the best method of transfer pricing if the department that is buying is not required to buy from another internal department. However, if the buying department is unable to choose its supplier, the manager of the supplying internal department will not have any motivation to control costs, because he or she will know that the costs will simply be charged to the next department.
B. Cost based transfer pricing is perhaps the best method of transfer pricing if the department that is buying is not required to buy from another internal department. However, if the buying department is unable to choose its supplier, the manager of the supplying internal department will not have any motivation to control costs, because he or she will know that the costs will simply be charged to the next department.
C. Cost based transfer pricing is perhaps the best method of transfer pricing if the department that is buying is not required to buy from another internal department. However, if the buying department is unable to choose its supplier, the manager of the supplying internal department will not have any motivation to control costs, because he or she will know that the costs will simply be charged to the next department.
D. The transfer price is the price charged by one unit of the company to another unit of the same company for the services or goods produced by the first unit and "sold" to the second unit. The goal in setting a transfer price is that the method used will stimulate the department managers — both selling and buying — to do what will provide the greatest benefit to the company as a whole, rather than to act in their own interest. When there is an external market for the product, market price is almost always the best transfer price to use. 
